New Student Debt Relief Policies Fix Broken Promises and Benefit Borrowers Most in Need

The same day that the U.S. Supreme Court overturned the Biden-Harris administration’s first student debt cancellation plan in June 2023, President Joe Biden immediately announced a new set of actions to deliver relief.¹ The administration’s “plan B” involves a lengthier and more detailed process to develop regulations that would shape who would be entitled to cancellation and how much.²

According to U.S. Department of Education estimates, these new actions would affect about 27.6 million borrowers, which—in addition to the 4.8 million who have already received relief thus far—accounts for roughly 3 in 4 student loan borrowers nationwide.³ The Biden-Harris administration has delivered $168 billion in relief so far, and the department estimates that the proposed policies would cost an additional $147 billion in over 10 years.⁴

Like the debt relief already delivered, the plan B debt relief would continue to offer remedies to those borrowers who were poorly served by the higher education and student loan systems. However, the new policies would also provide benefits to other categories of borrowers, including those who saw their student loan balances grow and those who experience hardship. Specifically, the proposed policies would:⁸

1. Eliminate interest growth above the original principal for borrowers who saw their balances grow, affecting an estimated 23 million borrowers. Borrowers making more than $120,000 per year—or $240,000 for married borrowers—and those who do not qualify for income-driven repayment (IDR) plans would see this relief amount capped at $20,000.
2. Cancel the full debt of an estimated 2.6 million borrowers who entered repayment more than two decades ago, the maximum repayment period on IDR plans. This would apply to borrowers with graduate debt who have been repaying for more than 25 years.
3. Automatically discharge the debt of about 2 million borrowers who are eligible for loan forgiveness under existing programs but did not apply.
4. Cancel the debt of about 200,000 borrowers who attended programs that failed to meet financial value accountability standards.⁹
5. Discharge the debts of about 900,000 Federal Family Education Loan (FFEL) loan borrowers who similarly have been in repayment for more than 20 years, are eligible under existing programs, or attended low-value programs.¹⁰

Principles of fairness guide all of these proposed rules—primarily, ensuring borrowers benefit equally, regardless of when they took out their loans, and rectifying well-known past harms. The regulations would deliver on unfulfilled promises made by the federal government to student loan borrowers over decades and offer remedies for a dysfunctional system that has often created a financial burden, rather than economic mobility, for student borrowers pursuing a better future. Meanwhile, the Biden-Harris administration also introduced income limits and caps on relief to ensure the borrowers who can afford to pay the full amount of their debts do so.

For the reasons outlined below, these new relief policies are equitable, necessary, and urgent, and the Department of Education should continue to move forward swiftly to finalize and implement them.

Despite their public portrayal as giveaways to the rich, the proposed student debt relief policies would disproportionately benefit low-income borrowers. Data from the notice of proposed rulemaking (NPRM) show that the borrowers expected to benefit from the proposed regulations are primarily those who are known to face more significant financial hardship as a result of their student debt.¹² This includes Pell Grant recipients, who come from families with high financial need, as well as those who have defaulted and those with subbaccalaureate degrees or without a degree.

For example, 68 percent and 76 percent of borrowers affected by the two interest waiver policies, respectively, received Pell Grants,¹³ compared with 32 percent of all undergraduate students in 2021-2022.¹⁴ Importantly, student loan borrowers come from less wealthy families than non-student loan borrowers who attended college. While 36 percent of postsecondary students took out loans for college, students in the bottom quartile were three times as likely to take out debt than those from the 75th through the 90th percentile—36 percent versus 13.1 percent. And they took out more than twice as much as their wealthier peers: $32,000 versus $14,500.¹⁵

A shocking 83 percent of those whose loans have been in repayment for more than 20 or 25 years and of those who attended programs that lost Title IV funding have experienced default.¹⁶ Notably, those who default on their student debt face the repayment system’s harshest consequences, such as wage or Social Security garnishment. These individuals are known to disproportionately include low-income borrowers, borrowers of color, and those who did not complete their degree.¹⁷ Figure 1 shows the default rates for the groups of borrowers expected to be affected by each proposed policy, which can be compared to a default rate of 27 percent across the whole sample.

The highest level of education in which many borrowers expected to be affected by these policies enrolled was the first or second year of undergraduate education, suggesting they earned an associate degree or credential or left without a degree.¹⁸ In total, 65 percent and 66 percent of those eligible for cancellation under IDR plans or targeted forgiveness programs, respectively, fall into this category, compared with 44 percent of all borrowers. This number rises to 83 percent for those who attended programs that lost federal funding.

Research shows that borrowers who hold certificates, who hold associate degrees, or who did not complete their degree experience financial insecurity at about twice the rate (47–51 percent) of borrowers who hold bachelor’s degrees (24 percent).¹⁹ Pell Grant recipients also struggle to pay down loans: After 10 years in repayment, 50 percent of Pell Grant recipients had remaining loans, with a median balance of $29,000, while 29 percent of non-Pell Grant recipients had remaining loans, with a median balance of $15,000, about half that of Pell Grant recipients.²⁰

The data show that these proposed policies target borrowers who struggle the most with student loan payments, including those who come from low-income families, those who completed less than two years of undergraduate education, and those who experienced default.

Student loan debt has been shown to contribute to the Black-white racial wealth gap in the United States, with one 2016 study showing that Black borrowers take out about $7,000 more in student loans than their white peers.²¹ Furthermore, the disparities in debt burden more than triple, to $25,000, four years after graduation. High debt burdens early in life force young people to spend their income servicing this debt, rather than buying homes, saving for retirement, investing, and building wealth.²²

The Center for American Progress estimates the interest waiver provisions would deliver relief to roughly 6 million Black borrowers, or 23 percent of the estimated number of borrowers receiving relief, as well as 4 million Hispanic or Latino borrowers (16 percent) and 13.5 million white borrowers (53 percent).²³ These shares are roughly in line with the current borrower population as a whole, but the Black share is about twice as large as the share of nonelderly college attendees and nonelderly Black Americans. This reflects the fact that a higher share of Black students must borrow for their education, face greater difficulties repaying their loans, and, therefore, stay in the loan repayment system longer.²⁴

For example, data from 2015–2016 show that 12 years after enrollment, about 22 percent of white borrowers, 52 percent of Black borrowers, and 25 percent of Hispanic or Latino borrowers owed more than they originally borrowed.²⁵ Another study showed that about two-thirds of Black bachelor’s degree borrowers who graduated in 2008 had a remaining balance after 10 years in repayment, while about one-third of white borrowers did—and that Black borrowers’ median balance was about double that of white borrowers: $39,746 versus $19,653.²⁶

Several of the debt relief proposals, furthermore, target older borrowers, a group that is also disproportionately Black. White borrowers account for 65 percent of borrowers under 30; 53 percent of borrowers between the ages of 30 and 50; and 42 percent of borrowers over age 50. Black borrowers, on the other hand, account for 12 percent, 25 percent, and 33 percent of these borrower age groups, respectively.²⁷ Therefore, the debt relief proposals that target older borrowers—such as those for FFEL loan borrowers, those with loans in repayment for more than 20 years, and those from closed programs—would also disproportionately help Black borrowers. For all of these policies, 70 to 100 percent of borrowers expected to receive relief have been in repayment for more than 20 years, indicating that most are over the age of 40.²⁸

In addition, these regulations would deliver overdue relief to those failed by the institutions they attended. Borrowers expected to be affected include those facing documented issues such as servicer errors, forbearance steering, and other bureaucratic hurdles that may have caused their balance to grow, prevented them from enrolling in or remaining enrolled in the best repayment plan options, or receiving the targeted forgiveness opportunities for which they were eligible.²⁹ Borrowers who attended schools that closed, failed accountability metrics, or otherwise lost federal funding should have been entitled to relief but frequently waited years or decades to be made whole again, long after the institutions shuttered.³⁰

It is crucial to ensure rigorous oversight and implement strict measures to hold institutions accountable for the harm they cause students. Such actions are essential in safeguarding current and prospective borrowers from future predatory practices.³¹ Proposed regulations would protect future students and work as a remedy for those who have been harmed by their institution or program.

The Department of Education proposed introducing a waiver based on secretarial actions (§30.86) that would give the secretary authority to forgive the loan balances for students who attended certain institutions or programs with specific actions taken against them.³² These actions include, but are not limited to, instances where an institution lost federal financial aid eligibility, failed to meet standards for student outcomes, did not deliver financial value, or lost its accreditation. This waiver would provide relief to students who took out loans during periods when the institution’s eligibility for federal aid was in question. The department rationalizes that requiring students to repay loans for an education that did not meet federal standards is burdensome. Such a waiver would apply even when agency actions were ultimately resolved through settlements.

The Department of Education also proposes waiving student loans for borrowers who attended an institution or program that voluntarily chose to close before any actions the department took became final (§30.87). Under this provision, borrowers would not be made worse off because their program or institution decided to close. It is important to note that this provision differs from closed-school discharge and does not cover all borrowers enrolled at the institution during the time of closure.³³ Any borrower who did not complete the program or was enrolled on or just before the closure date would instead be eligible for a closed-school discharge.

Moreover, in September 2023, the Department of Education announced its final regulations for a strengthened gainful employment (GE) rule, protecting an estimated 700,000 students from enrolling in career training programs that would leave them with unaffordable debt.³⁴ The department is expanding this provision and proposes to waive debt where there is evidence that a program failed to meet GE standards and subsequently closed (§30.88). Using a new framework, this proposed waiver provides relief in such cases, distinct from closed-school discharge, to ensure borrowers are not unfairly burdened by loans for a program that failed to deliver on promised benefits.

Such efforts build on the Biden-Harris administration’s ongoing efforts to provide debt relief for borrowers whose schools cheated, precipitously closed, or were involved in related court settlements. The administration approved $6.1 billion in group student loan discharge for 317,000 borrowers who attended the Art Institutes, and as of May 2024, the administration has provided $28.7 billion for 1.6 million borrowers who experienced some sort of harm by their institutions.³⁵

In addition, the debt relief proposals extend relief to borrowers entitled to it because they have been in repayment longer than the maximum length of income-driven repayment plans; because they struggled to navigate the complex administrative requirements of the repayment system; and/or because they were unaware of certain programs and therefore did not apply.

The opt-in nature of many repayment plan options and targeted forgiveness opportunities often means those who would benefit the most do not apply. For example, a 2022 study by JPMorgan Chase Institute found that for every borrower eligible for an IDR plan who does apply, there are two borrowers who do not; and those who do not apply have significantly lower incomes than those who do.³⁶ Automating relief for borrowers eligible for existing opportunities would make the repayment and waiver system more equitable, as those who struggle to navigate the system the most would no longer be left behind.

The Biden-Harris administration has tackled many long-standing complex issues embedded in the student loan repayment system. For example, the issue of growing balances on income-driven repayment plans where the monthly payment fails to cover interest is one of the most frequently cited challenges for borrowers, particularly Black borrowers.³⁷ Fortunately, the interest benefit provision of the Saving on a Valuable Education (SAVE) plan and the elimination of capitalized interest in most cases prevents much of this future balance growth—except for most deferments and forbearances.³⁸ Borrowers from earlier generations who saw their balances grow even as they made payments, when they were steered into inappropriate forbearances, or when they saw their interest capitalize after being unable to recertify their income and stay on and IDR plan can now be placed on a more level playing field with future borrowers.

Despite the 2023 Supreme Court decision halting the Biden-Harris administration’s first attempt to deliver student loan debt relief, the Department of Education has pressed forward to address the crisis of student debt and alleviate the financial burden that it has imposed on many people, young and old, hoping to better their lives through higher education.³⁹ These policies deliver on the promises made to borrowers in existing programs and also help extend the benefits of existing programs to broader groups of borrowers. In addition, the new actions target borrowers for whom student loans have presented the most hardship—those who rightfully deserve relief after being poorly served by the higher education and student loan systems. These policies are essential steps toward remedying the harms done to borrowers and making the federal student loan repayment system more functional.

In the future, however, the United States should move toward simpler, more publicly supported higher education funding models that do not significantly shift the financial burdens and impacts of complex bureaucratic systems onto individual students. Higher education is a public good, in which all members of society benefit from a well-trained and highly educated workforce. It makes the nation more competitive, contributes to economic growth, promotes innovation, and ensures areas of critical workforce need are filled. Federal and state governments should reflect this reality by boosting their direct investments in higher education and reducing the need for those pursuing higher education to rely on the student loan system.